What Are The Current HMRC R&D Tax Processing Times?
When your client has submitted an application for R&D Tax Credits, they will then need to wait for HMRC to receive the paperwork and process it for payment. HMRC’s own guidance states that it will aim to process R&D tax relief claims in a maximum of 28 days. This means that once your client’s application has been received, they can expect it to be reviewed and paid out fairly swiftly. However, as with most organisations, how quickly a claim can be settled by HMRC depends on what their workload is like and the availability of staff. At the time of writing, 28 days is the current waiting period.
What are R&D Tax Credits?
The UK government has long acknowledged that innovation is an essential part of the UK’s success in competitiveness, performance and productivity. Back in the year 2000 it therefore launched its research and development (R&D) Tax Credits programme as an incentive for companies of all sizes to develop and grow. It aims to reward innovation, and encourages companies to make scientific and technological steps by developing new products/services or improving existing ones. The relief is offered on many types of R&D expenditure, including materials and staff costs, as well as money spent out on testing, software and prototypes. It is then administered either as a reduction in the Corporation Tax a company must pay, or as a cash lump sum.
How much are R&D Tax Credits worth?
The amount of R&D tax relief on offer to small and medium enterprises (SMEs) has dramatically increased over the years in recognition of the substantial efforts and expense innovative work requires. At the current time, SMEs can receive back as much as 33.35% of their eligible R&D expenditure under the scheme.
The incremental rise in the amount of relief SMEs can claim means that the cash value for tax paying company claims is now £26 for every £100 of R&D expenditure (based on a 20% tax rate) and £33.35 in every £100 for those making a loss.
Larger companies must use the less generous RDEC scheme (although their pay outs tend to be much bigger). From the 1st January 2018, the relief rate increased from 11% up to 12%, giving a net cash relief of 9.72% at a 19% tax rate. Unlike the super-deduction scheme of old, which only provided a benefit if the business was liable for Corporation Tax, RDEC is payable regardless of the organisation’s tax position. However, it’s still subject to some limitations including a cap based on NI and PAYE.
How far back can my client claim R&D tax relief?
R&D Tax Credits can be submitted by your clients for up to two years after the end of the accounting period during which the work took place. Before this two years is up, they must have submitted an R&D tax relief application for all innovative works during that period - any later and they will likely miss out. This is due to the fact that R&D Tax Credits are a relief on a company’s Corporation Tax bill, and the deadline for Corporation Tax return amendments is generally 24 months after their accounting period ends.
As you will already be aware, accounting periods are typically twelve months in length. This would mean that if, for example, your client files their accounts to 31st March each year, they will have until 31st March 2020 to make a claim for the accounting period that finished on the 31st March 2018. Once the deadline of midnight on the 31st March 2020 has passed, they will no longer be able to recoup their relevant R&D expenditure between the 1st April 2017 and the 31st March 2018.
My client has a start-up business. How will this affect timings?
Claim turnaround times may be slightly different if your client’s business is very new. Having registered with Companies House, their incorporation date is fixed at that nominated registration date. Again as you are no doubt aware, their first accounting period is set as 12 months from the end of that month. However, going forward your client may decide this date isn’t actually very convenient and opt to change it to one that makes better commercial sense. Indeed, many UK companies find the 31st March best fits their business year end, so that it matches the tax year.
In their first year of business, your client’s financial period could be anything from 6 month to 18 months long. This means that their first two accounting periods as a business may not actually be two (12-month) years.
How does it affect an R&D tax relief claim if my client changes their accounting period end date?
For the purposes of applying for R&D Tax Credits, regardless of how long your clients’ accounting period is, the deadline for filing will always be two years from each accounting period’s end. This still applies if the accounting period end date is changed to a different one. Furthermore, your client may have begun their R&D activities before the earliest period in which they can claim for. However, if they are still carrying out the work, and they are still looking to resolve technological or scientific uncertainty in their last two accounting periods, then a claim for expenditure during this time can be made. This is still the case even if their project began before then.
Work with us to help your client make a successful R&D Tax Credits application with fast, maximised results
Myriad Associates specialises in helping companies - and company accountants - navigate the intricacies of R&D tax relief. Our team of specialist R&D advisors and chartered accountants will use their expertise in assisting innovative companies to optimise their R&D tax relief claims and ensure that all costs are properly identified and accounted for. We will also be pleased to offer advice on record-keeping, best practice and how to make sure your clients don’t fall foul of an HMRC investigation.
Call us today on 020 3994 2236 or use our contact page and we'll get back to you as soon as possible.